On Wednesday, the influential ADP report of private sector employment is released alongside data on factory orders and the Federal Reserve Beige Book. Economists tip a 173,000 lift in private sector jobs in February, below the 192,000 job gain in January.
On Thursday, the regular US weekly data on new claims for unemployment insurance (jobless claims) is issued alongside international trade, productivity, consumer credit and the Challenger survey of job layoffs. The trade deficit may have lifted around $4.5 billion to $43 billion in January but it won’t move markets.
And on Friday in the US, the pivotal non-farm payrolls (employment) report is released. Economists tip job gains of 148,000 in February and an unchanged jobless rate of 7.9% – not enough improvement to cause the Federal Reserve to revise quantitative easing plans. Fed chairman Ben Bernanke also speaks on Friday.
In China, trade data is released on Friday and inflation figures on Saturday. The challenge will be to adjust the data to account for the Lunar New Year holidays.
Sharemarket, interest rates, currencies and commodities
The profit reporting or earnings season is over for another six months and there are sighs of relief all round. Despite the so-called “challenging” conditions, companies have generally been successful in lifting revenues and reducing costs, boosting bottom-line profits.
What chance is placed on the Reserve Bank cutting interest rates in the coming week? Well, according to expectations built into the overnight indexed swap (OIS) market, traders believe there is a 31% chance of a rate cut. But given the fact that there hasn’t been anything of note over the past month that could promote lower rates, if the Reserve Bank was to trim rates, it would be very much a surprise.
The OIS market still has a rate cut on the cards, but it is only fully priced in to occur in five months’ time. The implied yield on 90-day bank bill futures in September stands at 2.64% and the implied yield in December is 2.68%.
The Reserve Bank continues to note that the Aussie dollar is “modestly overvalued” but there is no quantification of what that actually means in practice. Clearly the RBA has internal models of the currency, mapping the currency against a range of variables such as interest rate differentials, interest rate forecasts, commodity prices, the external accounts as well as some perception of the Aussie dollar’s “safe haven” qualities in the current uncertain world.
Just as with the concept of a “normal” or natural rate of unemployment, the Reserve Bank will probably never produce numerical estimates about where the Aussie dollar “should” be, but given its language, the RBA is likely to have in mind a value around parity with the greenback.
Craig James is chief economist at CommSec.
